Progressive Politics from Memphis

Who’s driving this bus?

Memphis budget back and forth raises questions about long-term plans, vision for the City among other things

If you’re not confused you’re not paying attention.

To be honest, I’ve been on vacation for a week, and doing everything I can to not pay attention, but the events of yesterday’s Memphis City Council meeting snapped me back into reality.

By my count, I’ve seen five separate budget proposals put before the Council:

• The original plan that increased the rate to $3.39.
• Three plans reported by the CA on May 30th. All three have a variety of options, all dire either through extreme cuts, or tax increases.
• The current plan, which increases the rate to $3.51 reported on June 4th.

I reserve the right to revise and extend this list in case I’ve left one out (I’m a blogger, not a journalist, I can do that).

I haven’t seen the latest four budget proposals, so all I can do is rely on media reports until I can track them down. I also don’t know which one Mayor Wharton is most wed to. I presume its the most recent budget, which seems to resemble the original proposal more closely, but also seems to ignore the results of impasse proceedings that have made their way through the pipeline over the past several weeks.

Coincidentally, Nashville just passed their budget. $1.8b for all Metro and County operations. $1.8b is also the sum of all City and County operations, even though our population is nearly 300,000 more people. Maybe if I add in the budgets of the other municipalities it would make more sense, but I kinda doubt it.

Footloose and fancy free

There’s been a lot of rhetoric surrounding this budget season. The reasons for this are many: ideology, political aspirations, and personal vendettas are the first three that come to mind. But beyond the rhetoric is the basic reality of 9th grade civics involving government. Simply put:

It is the responsibility of the Executive Branch to propose a budget.

The proposed budget should reflect the priorities of the Executive branch with an eye towards the long-term direction of the community and the realities of the revenue sources, long-term liabilities, and nuts and bolts expenditures of the city. An accurate portrayal of these financial realities is critical, because they ultimately inform the public, and Legislative Branch, of things that are coming down the pike. This is just a proposal, however, not the final product.

It is the responsibility of the legislative branch to enact a budget.

The enacted budget can be similar or radically different from the proposal. Legislative branches have wide latitude to re-shape all kinds of priorities with the budget pen. The tailoring of these priorities can be surgical in nature, or a Frankensteinian hack-job.

But lets not get it switched. It’s not the fault of the Executive that the Legislative branch passes a budget that conveniently ignores any or all of the revenue streams, liabilities, or expenditures. Once the Legislative branch is done either giving a haircut, creating a monster, or anything in-between, it is the job of the Executive to try and make that budget work, and realize as many priorities as possible, with the tools they have available as a result of that budget.

Seems to me that both sides have forgotten portions of this throughout this and previous budget seasons. And while I believe that a skeptical eye is both critical and necessary to being an effective legislator, personal issues seem to have taken over what should be a professional exercise.

Comptroller Complications

The budget season was on track to be a contentious battle in the first place. Lower revenue outlooks due to decreases in property values meant either a tax increase (from 3.11 to 3.36 to remain revenue neutral) or serious cuts were in the future.

The report detailed many problematic financial issues. The one most widely mentioned is the “scoop and toss” debt refinancing the City has engaged in several times in recent years. While there’s no doubt that using one credit card to pay another is a bad idea, if it means a lower interest payment, and there’s a commitment to actually pay down that debt, it can be an effective strategy for reducing the impact of debt on revenue streams.

It should be noted, Shelby Co. government has refinanced a great deal of debt over the past several years using historically low bond interest rates to reduce short-term liabilities. I’m not sure why Memphis’ use of this tactic is any worse, except that the overall revenue outlook probably doesn’t have as much upside.

So debt is a big deal. The other big deal is revenue, which the report notes, is declining necessitating a tax increase, a reduction in spending, or both.

What most people haven’t keyed in on is the section of the report called Fiscal Concerns located on page 4.

In that section the Comptroller says:

“…We are concerned with the low level of general fund balance after accomplishing the corrective actions listed above. The City appears to have funding needs in the near future for liabilities related to pension obligations, other post-employment benefit obligations, and money owed to the school system. Also, the City has aggressively used PILOTs and other property tax incentives for economic development purposes which have cut into future property tax revenue growth.”

You can take that paragraph a couple of ways, but all of them include the following: We’ve got some big bills coming due.

Really, most of this is stuff people already knew.

Pensions aren’t in the budget, as far as I can tell, but its a subject that some of my more conservative friends consistently herald as a bad long-term liability. Its hard for me to tell if this is reality or just some bias against paying pensions, but I sure would like some clarity on the issue. (though this article mentions the liability problems, though not in detail)

There is a section called OPEB (Other Post Employment Benefits). We borrowed $22m from that fund last year to pay for Pensioners Insurance (that’s what it looks like anyway). From my perspective, that money never should have been borrowed. Period.

So now, we not only have to fund the current year, but also last year. I don’t know who proposed that, but it was a bad idea that follows a trend of folks taking a promise and turning it into a threat when it comes to dealing with retirees.

That ain’t cool.

What’s most interesting to me is the comment about the aggressive use of PILOTs and other tax reduction schemes for business. Does this mean these things aren’t paying off? This year the budget mentions $5m in PILOT payments. Last year, AFSCME had a list of the top PILOT recipients. I used to have it somewhere, but I can’t find it. Needless to say, the savings to business was north of $20m…for the top 10 recipients.

This begs the question…are these incentives doing what they’re supposed to? The Pew Center on the States has a paper from last year that deals with state incentives and some of the pitfalls. It might be a good read for local governments too. While the EDGE Board may be super transparent compared to other IDB’s, I haven’t seen them recommend the revocation of a PILOT due to non-compliance. That’s a little concerning since, I’m pretty sure there is at least one isn’t meeting the terms of the agreement.

What’s the long-term vision?

The Comptroller’s report makes mention of a 5 year strategic plan. I haven’t seen this document. I’ve heard a lot about it, but until someone can point me to a copy its vaporware as far as I’m concerned.

The Administration hasn’t done a good job of selling this plan to the public, and that’s part of why the Council is picking them apart.

The Council has, in the past, sought some kind of longer-term budget guidance. I’m not aware of any vote or resolution that would mandate such a plan. Right now, I’m not sure the politics of the situation would allow some members to give that kind of high ground to an administration that they’re basically actively running against. That’s a missed opportunity in my book.

The Council, by contrast doesn’t have to be as consistent. Legislative bodies, by their nature are supposed to have a somewhat adversarial or at least skeptical eye toward administrations. I’m not sure this level of adversity is productive, but political fortunes and personal vendettas being what they are…this kind of thing isn’t entirely unexpected.

In the absence of an articulated, concrete vision, legislative members are free to roam the hills of fishing expeditions and rhetoric that suits their political needs. I see more of that than an honest appraisal of what needs to happen to make Memphis more sustainable going forward.

The City Council has not seemed to be able to muster any kind of consensus long-term vision. 12 of 13 members are in the second year of their second term. Many of the decisions they have made over that nearly 6 year period have brought us to where we are today. I don’t blame them for the overall national economic conditions, or all the things they inherited, though 6 years in, the timeframe for that pardon is quickly diminishing.

Its time we got serious…and if this is what serious looks like…then wow, just wow.

A couple of months ago I gave a talk on school funding. In that presentation I said:

Budgets are a reflection of the moral convictions of a community.

I hold to that.

I hope our moral convictions are such that we would be very cautious about seeking additional sacrifices from working families that just happen to work for the City. The 4.6% cut last year was a hit in hard economic times. There should at least be a timeframe for restoration of that cut. We can’t be a city that penalizes people who serve our community. That’s no way to grow.

I think everyone understands that some positions will be eliminated while we try to clean up the financial mess we’ve made. Hopefully that can be done through attrition rather than layoffs to give more of a soft landing than a hard bump.

In the mean time, the Council needs to think long and hard about their ideas of revenue, expenditures, long-term liabilities, rate and most importantly, value.

“Reduce spending”, “increase efficiency”, “raise revenue”, “decrease the tax rate” and many of the other phrases used in this and previous budget negotiations are empty political rhetoric unless they include specific proposals backed by accurate data that adds real measurable value to the citizens of Memphis, not conventional wisdom or ideological flights of fancy. Sure, it makes for a great sound byte for the media, but it doesn’t mean anything until there’s some real meat on the bone. I hope all parties concerned will take that to heart.

For reasons unknown to anyone, the Mayor seems to have decided to let the City Council drive the bus. Hopefully, they’ll find a place to stop, get a map, and take us somewhere we can at least deal with for a while…that isn’t FantasyLand.

Jim Strickland is a good guy and smart and able public servant, but the Mayor is right on this one and the Council and Councilman Strickland are wrong. The Council should have reserved the money it withheld from the schools in 2008. Instead, it gave it to Herenton for employee raises (later rescinded) and a tax cut just before the recession hit, which lowered tax revenues due to lower property values, and created this train at the end of the tunnel scenario. Sharing this statement from Mayor Wharton I received because it’s important for us to do the right thing and support necessary public services, and for elected officials to be held accountable for their decisions. I believe in taking responsibility for one’s actions. Under other circumstances, that could’ve been me.

Please see the following statement from Mayor A C Wharton, Jr. regarding
the City’s current budget discussion:****

** **

“Shortly after my election to Memphis Mayor in 2009, I went before the
Memphis City Council to ask that the Council restore the property tax rate
cut it had implemented in 2008 as a part of its efforts to cut funding from
Memphis City Schools. It had become evident to me that this decision would
not be supported by the courts – the Tennessee State Supreme Court later
mandated the City restore funds to the schools – and the loss of revenue
from the tax cut would seriously impair our ability to comply with the
court ruling to fund schools and operate government.****

** **

*Essentially, I asked for the restoration of the tax rate to avoid the
situation we are now facing.* Specifically, we were not going to be able
to fund Memphis City Schools solely on the 10 cent tax allocation and that
we would have to make cuts – which we did – and borrow, use funds from
reserves, and pull funds from other needed services. ****

** **

The opposition to the restoration of the tax rate, which the Supreme Court
ultimately ruled had been done illegally, was led by current Budget Chair,
Councilman Jim Strickland who now complains the loudest about the measures
we were forced to resort to in honoring our legal obligation to the schools.
****

** **

Although he now states he voted against the refinancing we undertook as a
part of our efforts to pay city schools, I do not recall his having led any
sustained opposition to this measure. It is now odd to me that almost a
year to the day after being directly informed about the cost of the 2010
financing, he now speaks out loudly against it. As the attached email and
document *(attachment 1 and attachment 2) *will indicate, Councilman
Strickland inquired directly during the 2013 budget preparation on these
costs. He was provided with this information yet strangely remained silent
until the recent Comptroller’s letter. ****

** **

For the sake of clarity, I will underscore the fact that refinancing was
only brought forward after my past proposals to restore the full or some
portion of the tax rate would not pass the Council.****

** **

As has been obvious I have tried to refrain from “finger pointing.” I will
still continue to refrain from this practice moving forward and only when
the true situation is misrepresented will I speak out. It is in the best
interest of us all to learn from what has happened in the past and move
forward with a budget that moves us down the road of strengthening our
financial standing and meeting the needs of our citizens.”****